Union Budget 2016-17 - Service Tax

SERVICE TAX

1.0 Amendments in Finance Act

[Effective from date of enactment of Finance Bill, unless otherwise stated]

1.1 Amendment in Negative List

1.1.1 Widening the ambit of Service Tax by way of omission of Education Services specified under Clause (l) of Section 66D of the Finance Act, 1994 and approved vocational educational course specified under clause 11 of Section 65B of the Finance Act, 1994 [Effective from such date on which the Finance Bill, 2016 receives assent of the President of India]:

It is to be noted that specified Educational Services provided by way of -

(i) pre-school education and education up to higher secondary school

(ii) education as a part of a curriculum for obtaining a qualification recognized by any law for the time being

(iii) education as a part of an approved vocational educational course.

was covered within the purview of Negative List and therefore was not liable to tax. The Finance Bill has proposed to delete the said entry from the Negative List so as to bring the said service within the service tax basket. However, vide Notification No. 9/2016-ST dated 01-03-2016 the afore-mentioned services has been incorporated under Mega Exemption Notification and thus the assessee are exempt from payment of any service tax for provision of such services.

1.1.2 Omission of Service by way of Transportation of passengers by a stage carriage specified under sub clause (i) of Clause (o) of Section 66D

It is to be noted that "service of transportation of passengers, with or without accompanied belongings, by a stage carriage" has been omitted with effect from 1st June, 2016.

However, services provided by a non-air conditioned contract carriage will be exempted from payment of service tax as inserted in clause (bb) in entry 23 of the Exemption notification No. 25/2012 with effect from 1st June, 2016. 2 | P a g e

1.1.3 The services provided in relation to transportation of goods has been kept outside the ambit of Negative List, although exemptions provided thereon

It is to be noted that services by way of transportation of goods (i) by road except the services of (A) a goods transportation agency; or (B) a courier agency; (ii) by an aircraft or a vessel from a place outside India up to the customs station of clearance in India; or (iii) by inland waterways; has been omitted from the clause (p) of Negative List.

However services by way of transportation of goods by an aircraft from a place outside India upto the customs station of clearance in India will be exempted from payment of service tax vide Notification No. 9/2016-ST dated 01-03-2016 with effect from 1st June, 2016.

1.2 Explanation 2 of section 65B(44) has been substituted to levy service tax on activities carried out by a lottery distributor or selling agents of the State Government

Section 65B(44) has been amended to clarify that any activity carried out by a lottery distributor or selling agents, on behalf of the State Government in relation to promotion, marketing etc. shall be covered within the definition of Service and shall be liable to Service Tax.

1.3 Broadening the ambit of Declared Services so as to include assignment of right to use the radio frequency spectrum and subsequent transfers thereof (Section 66E)

The definition of Declared Service under Section 66E has been amended so as to include assignment by the Government of the right to use the radio frequency spectrum and subsequent transfers thereof.

The above service has been inserted so as to make it clear that assignment by the Government of the right to use the spectrum and subsequent transfers of assignment of such right to use is a service leviable to service tax and not sale of tangible goods. 3 | P a g e

1.4 Section 67A of the Finance Act, 1994 amended to obtain specific rule making powers in respect of Point of Taxation Rules, 2011

Section 67A of the Finance Act, 1994 has been amended to obtain specific rule making powers in respect of Point of Taxation Rules, 2011 by inserting the following sub section-

"(2) The time or the point in time with respect to the rate of service tax shall be such as may be prescribed."

1.5 Time limit for issuance of Show Cause Notice for recovery of service tax for cases not involving fraud, collusion, suppression etc. has been extended

Section 73 of the Finance Act, 1994 has been amended to increase the time limit for issuance of Show Cause Notice for recovery of service tax in cases where service tax is not paid, short paid, not levied or short levied or erroneously refunded, for cases not involving fraud, collusion, suppression etc. from eighteen months to thirty months.

The said amendment seems contrary to the approach of the present government towards liberalizing litigation and creating a tax friendly environment.

1.6 Insertion of Draconian Provision under Section 73B regarding payment of interest on amount collected in excess & Section 75 regarding payment of interest by the tax payer in cases wherein the amount of Service Tax is collected by the Service Provider but not deposited within the due date prescribed

Section 75 of the Finance Act, 1994 has been revamped so as to provide that the service provider shall be liable to pay interest at a higher rate, in case the amount of service tax is collected from the service recipient but not deposited to the credit of Central Government.

Further, the rate on which the person shall be liable to pay interest as specified under Notification No. 13/2016-ST dated 01-03-2016 is mentioned here-in-below for ease of reference:

Similarly, it has been provided that the assessee shall be liable to pay service tax at the rate of 15%

The said amendment would be applicable from such date on which the Finance Bill, 2016 receives assent of the President of India.

1.7 Respite from ancillary proceedings under Section 78A of the Finance Act, 1994 shall be deemed to be concluded in certain cases

An Explanation has been inserted after Section 78A so as to provide that where any proceeding for the person liable to pay duty have been concluded under clause (i) of first proviso to Section 76 or clause (i) of second proviso to Section 78 in respect of duty, interest and penalty, i.e., where main demand, interest and penalty imposed are paid in conclusion of the proceedings, all proceedings in respect of penalty against other persons, if any, in the said proceedings shall also be deemed to be concluded.

1.8 Relief from various provisions under Service Tax for prosecution

The monetary limit for launching of prosecution under Section 89 of the Finance Act, 1994, has been from INR 50 Lakhs to INR 2 Crore of service tax evasion.

The power to arrest in service tax law is proposed to be restricted only to situations where the tax payer has collected the tax but not deposited it to the Government, and amount of such tax collected but not paid must exceed the threshold limit of Rs 2 crore.

1.9 Section 93A of the Finance Act, 1994 amended to allow grant of rebate on input services by notification.

Section 93A of the Finance Act, 1994 has been amended to enable granting of rebate of service tax paid on taxable services by way of notification as well as rules, which are used as input services for manufacturing or processing or for providing any taxable services in or in relation to export of goods or services.

1.10 Retrospective effect of Notification issued under section 93A of Finance Act, 1994

It is pertinent to note that Notification No. 41/2012- ST, dated the 29th June, 2012 was amended vide notification No. 1/2016-ST dated 3rd February, 2016 so as to, inter alia, allow rebate of service tax on services used beyond the factory or any other place or premises of production or manufacture of the said goods, for export of the said goods. The said amendment has been given retrospective effect from the date of application of the parent notification, i.e., from 01/07/2012. Time period of one month is proposed to be allowed to the exporters whose claims of refund were earlier rejected in absence of amendment carried out vide Notification No.1/2016-ST dated 3rd February, 2016.

1.11 Section 101 of the Finance Act, 1994 inserted providing for refund of service tax paid on construction, erection, commissioning installation completion, fitting out, repair, maintenance, renovation or alteration of canal, dam or other irrigation works provided to bodies set up by government [Applicable upto 01-04-2020]

Section 101 of the Finance Act, 1994 has been inserted to exempt services provided by way of construction, erection, maintenance, or alteration etc. of canal, dam or other irrigation works provided to bodies set up by Government but not necessarily by an Act of Parliament or a State Legislature during 01st June 2012 to 29th January 2014.

Refund of Service Tax paid on the said services shall also be allowed in accordance with the law including the law of unjust enrichment. An Application for refund of service tax should be filed within a period of six months from the date on which the Finance Bill, 2016 receives the assent of the President for claiming refund of Service Tax paid on such services.

1.12 Section 102 of the Finance Act, 1994 inserted providing refund of service tax paid on certain services provided to the Government, local authority or Government authority [Applicable upto 01-04-2020]

Exemption from Service Tax on services provided to the Government, a local authority or a governmental authority by way of construction, erection, etc. of -

(a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;

(b) a structure meant predominantly for use as –

(i) an educational,

(ii) a clinical, or

(iii) an art or cultural establishment;

(c) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65B of the said Act;

was withdrawn with effect from 01/04/2015.

However, vide Section 102 the said exemption has been provided for the specified services provided under a contract which had been entered prior to 01/03/2015 and on which appropriate stamp duty, where applicable, had been paid prior to that date. The services provided during the period from 01/04/2015 to 29/02/2016 under such contracts shall remain exempted from the levy of service tax.

An Application for refund of service tax may be allowed to be filed within a period of six months from the date on which the Finance Bill, 2016 receives the assent of the President.

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